Guest Post by Prof. Holbrook: Whose Law Controls On Sale Prior Art in Foreign Countries?

Guest post by Timothy R. Holbrook, Vice Provost for Faculty Affairs and Asa Griggs Candler Professor of Law, Emory University.

The America Invents Act (AIA) effected a sea change in U.S. patent law.  One of the most significant changes was to shift the U.S. from a “first to invent” to a “first inventor to file” system for allocating priority.  This move is reflected in the restructuring of 35 U.S.C. § 102, the provision that defines prior art for assessing whether an invention is novel and non-obvious.

Aside from the shift in assessing priority, some contended that, by amending § 102, Congress had rejected long-standing Supreme Court precedent that allowed secret uses and sales of the invention to trigger the statutory bars under the 1952 Patent Act.  In Helsinn Health Care S.A. v. Teva Pharmaceuticals USA, Inc., the Supreme Court, in its first case addressing the AIA’s § 102, rejected this argument.

The AIA did more than shift the United States to a first-inventor-to-file system, however.  The AIA also eliminated geographic limits on prior art.  Under the 1952 Patent Act, activities triggering the public use and on-sale bars under then-35 U.S.C. § 102(b) had to take place “in this country.” The elimination the geographic limit greatly expands what qualifies as prior art under the AIA.  Moreover, the Supreme Court’s interpretation of the AIA in Helsinn makes that even more sweeping as secret sales activity that may not be accessible to the broader public can now qualify as prior art.

The removal of the territorial limits, however, also presents a different question: whose law will govern whether an invention is deemed “on sale”?  Under the 1952 Patent Act, to be on sale, an invention (1) had to be the subject of a formal commercial offer for sale and (2) had to be ready for patenting.  Whether the invention is subject to a formal commercial offer is assessed from basic contract principles.

In the foreign context, however, what constitutes a formal commercial offer may vary from U.S. law. Because these proposed or completed sales transactions could take place outside of the United States, the law of another country generally would govern any potential or actual agreements.

The elimination of the geographic limits to on-sale activity now presents a choice of law problem.  On one hand, one could argue that the law of the relevant country should control: the parties in the transaction have that law in mind and not necessarily U.S. patent law.  On the other, if the courts were to rely on foreign law to assess whether the invention is “on sale” under § 102(a) of the AIA, then what qualifies as on-sale prior art would vary widely, depending on the law of the country in which the commercial activity took place.  The same activity might qualify as prior art in one context and not in another.  Courts, therefore, would be better of creating U.S. law defining triggers on-sale prior art regardless of where the activity occurred.

So what route will the courts take?  I suspect it will be the latter, using Federal Circuit law to define the contours of on-sale prior art even when the activity arises overseas.

The Federal Circuit addressed an analogous situation in interpreting the statutory bars under § 102(b) of the 1952 Patent Act.  After the Supreme Court reworked the on-sale bar test in Pfaff v. Wells Electronics, Inc., the Federal Circuit in Group One, Ltd. v. Hallmark CardsInc., clarified step one of the two-part test by requiring a formal commercial offer for sale.  In so doing, the court confronted a similar choice of law issue: should the law of the state governing the transaction dictate whether the invention was on sale, or should Federal Circuit law?

The court opted for the latter, rejecting the district court’s use of Missouri law to determine whether the invention was on sale.  The court reasoned that reliance on state law would create variability in interpreting a federal statute and emphasized “the importance of having a uniform national rule.” As the court stated:

To hold otherwise would potentially mean that a patent could be invalid in one state, when the patentee’s actions amounted to an offer under the laws of that state, and valid in a second state, when the same actions did not amount to an offer under the laws of that second state. Such a result is clearly incompatible with a uniform national patent system.

If past is prologue, one could easily see the court reaching the same conclusion with respect to the use of foreign law to interpret § 102(a) of the AIA.  Applying the law of various countries where commercial activities arise could lead to widely varying standards for on-sale prior art.  Indeed, the situation would be fare more complex than applying state law not only because of differing legal standards but also differing legal systems.  It is a more complicated analysis for U.S courts to discern foreign law than to discern the law of a given state.  It seems highly likely, therefore, that the Federal Circuit choose to apply its own law, using basic contract principles, in interpreting § 102(a) on-sale prior art that arises in foreign countries.

The situation at the international level, however, is far more complex than refusing to apply state law.  Activities in a foreign country would be assessed, and indirectly regulated, through the application of a U.S. legal standard, implicating concerns of the extraterritorial application of U.S. law.  Unlike the state law situation – where state law is subordinate to federal law – the Federal Circuit will be applying the law of the United States to acts in a co-equal sovereign. Actors in the relevant country may be unaware that their commercial behavior is violating U.S. patent law if there are significant substantive differences. That said, I would be surprised if courts consider this activity to trigger the presumption against extraterritoriality, in the same way they failed to truly account for the presumption in the patent exhaustion context.

The removal of geographic limits on public uses and on-sale prior art is a rather sweeping change.  As yet, the importance of the removal of these territorial limits has not been explored by the courts.  Particularly as it relates to on-sale prior art, courts likely will be applying U.S. law to activities arising in foreign countries in the interest in having a uniform standard.

Tim Holbrook is Vice Provost for Faculty Affairs and Asa Griggs Candler Professor of Law at Emory University.  This essay is drawn from part of his article, What Counts As Extraterritorial in Patent Law?, 25 B.U. J. SCI. & TECH. L. 291 (2019).

62 thoughts on “Guest Post by Prof. Holbrook: Whose Law Controls On Sale Prior Art in Foreign Countries?

  1. 5

    “Unlike the state law situation – where state law is subordinate to federal law – the Federal Circuit will be applying the law of the United States to acts in a co-equal sovereign. Actors in the relevant country may be unaware that their commercial behavior is violating U.S. patent law if there are significant substantive differences.”

    Application of US law regarding what constitutes a commercial offer for sale would not be applying US law to a co-equal sovereign, but rather the holder of a US patent regardless of whether that owner was foreign or domestic. Further, it cannot be said that a foreign sale “violates” US patent law – the law does not forbid someone from engaging in pre-patent commercial activity; rather, it simply says you delay at your own peril, potentially sacrificing the ability to obtain a US patent. If the activity would otherwise not bar patentability in that foreign jurisdiction, the applicant is free to apply for – and that government is free to grant – a patent in that country. The proposed rule has zero extraterritorial implications.

    1. 5.1

      Yes, yes… but what purpose would such a rule serve? This is not a “delay at your own peril” rule. All inventors who delay filing do so at their own peril, whether they get a commercial benefit from their invention during that time or whether they just carry their invention around in their heads. This is a “we begrudge the inventor a commercial benefit before filing an application” rule – and sure, we can have such a rule for domestic secret commercialization. But why would U.S. patent law be bothered by secret foreign activities that have no nexus to the U.S.?
      The Malaysian inventor who secretly commercialized his invention in Malaysia didn’t break any bargain with the American public, and caused no detriment to the American public that should cause forfeiture of US patent rights.
      I also think it’s naïve to believe that this rule has no extraterritorial implications. It regulates the same conduct abroad that it regulates in the US, and the message is clear: “we don’t want American inventors to secretly commercialize in the U.S., and we don’t want Malaysian inventors to secretly commercialize in Malaysia either.”

      1. 5.1.1

        Moocow,

        I am not sure that you are grasping the notion of extraterritorial legal effect.

        We are NOT reaching out into the domain of another Sovereign and changing their laws. ALL effects here are ONLY for US Sovereign law purposes.

        1. 5.1.1.1

          Sure we’re not reaching into some foreign sovereign’s domain to change the laws there. That’s true for all “extraterritorial” applications of US law, even the FCPA (analogy alert!).
          My point is that thoughtless applications of US law to foreign conduct can interfere with policies and laws of foreign sovereigns and trigger international discord. Country A has a special rule that denies patents for conduct that happens in country B, but country B continues to grant patents to inventors from country A who engaged in the same conduct. Country B could reasonably complain about that I think. Moreover, inventors in country B may change their behavior in hope of getting a patent in A, but in ways that are not intended or desired by B’s government.

          1. 5.1.1.1.1

            reply caught in count filter….

            1. 5.1.1.1.1.1

              … and the reply never made it out of the Count Filter purgatory….

              I might have to see if I can refashion my reply.

      2. 5.1.2

        … any bargain with the American people is wrapped up (properly) with the bargain of the Quid Pro Quo.

        This is also why I have been pushing people to have a more critical understanding of the differences (from the different portions of the Constitution) between and and all considerations of the different protections of Trade Secret and the Patent bargains.

        While “making money” may be involved with both, the two are factually different in kind (not just degree).

        It is a fundamental mistake to confuse and conflate the two very different things.

        1. 5.1.2.1

          “and and” ==> “any and”

        2. 5.1.2.2

          I have no idea what you just said.

          1. 5.1.2.2.1

            The legislatively remover Metallizing Doctrine was a mistake by the judiciary. The mistake was confusing and conflating two very different things.

            I have provided many comments on this topic of late.

            1. 5.1.2.2.1.1

              Cite?

              1. 5.1.2.2.1.1.1

                Line of work?

                1. Lol – are you claiming that THAT is your line of work…?

                  (My oh my, the self-flagellation is severe with this one)

                2. … (besides, I have already directly answered this question of yours)

                  Your game-playing is especially transparent here. The least you could do is include some funny GIFs.

                3. It is clearly NOT that you are “answering a question,” and it IS how you are answering a question.

                  Further, the comment on game playing was not just to answering a question – note that the comment is in direct relation to YOUR asking a question that I have already directly answered.

                  It is clear that you have NO meaningful point here in your posts.

                  How is that NOT game-playing?

                4. Thank you, anon, for finally being clear. You are the type of anonymous blog typer who thinks that answering a question is game playing.

      3. 5.1.3

        [W]hat purpose would such a rule serve? This is not a “delay at your own peril” rule. All inventors who delay filing do so at their own peril, whether they get a commercial benefit from their invention during that time or whether they just carry their invention around in their heads. This is a “we begrudge the inventor a commercial benefit before filing an application” rule – and sure, we can have such a rule for domestic secret commercialization. But why would U.S. patent law be bothered by secret foreign activities that have no nexus to the U.S.?

        I agree on all point. I think that the old Metalizing Engineering rule is a bad rule. I think that the AIA tried to fix the old rule and replace it with a better one. For better or worse, however, the SCotUS decided that the AIA did not change the old rule.

        I am not clear, however, that the rule becomes really any more or less suboptimal if it be applied to secret sales in Hong Kong than if it is applied to secret sales in New York. The untoward effect of the rule is limited to an effect on U.S. patents, and those who engage with the U.S. patent system can reasonably be charged with knowing the rule and governing their conduct accordingly.

        1. 5.1.3.1

          Agree. It’s more a question of the wisdom of applying the rule to foreign conduct. Add to that the absence of an articulated policy for doing so, and Metallizing Engineering’s poor fit with the new Section 102. I just can’t see that the Supreme Court thought this through.
          You should have seen them during the Helsinn oral argument (maybe you have). They were joking about it, they thought this was so easy.

          1. 5.1.3.1.1

            Agree. It’s more a question of the wisdom of applying the rule to foreign conduct.

            Actually, that’s the opposite of what Greg is saying.

            To wit: “ I am not clear, however, that the rule becomes really any more or less suboptimal if it be applied to secret sales in Hong Kong than if it is applied to secret sales in New York. The untoward effect of the rule is limited to an effect on U.S. patents, and those who engage with the U.S. patent system can reasonably be charged with knowing the rule and governing their conduct accordingly.

            In other words, location of conduct is simply not determinative, because it is not the location that is the focus, but instead, the focus is solely on the US Sovereign’s rightly controlled ‘patent as property’ process.

            The continued ‘push’ to make this into some sort of “US over-reach” is nothing but a fallacy.

        2. 5.1.3.2

          better or worse, however, the SCotUS decided that the AIA did not change the old rule.

          Some people are rather obtuse. See post 1.

          The focus on “sale” just is not the focus of the removed Metallizing doctrine.

  2. 4

    I am trying to grasp what foreign law you think might be relevant.

    It cannot be patent law — the meaning of the on-sale bar under the Patent Act is a matter of U.S. law. As SCOTUS and then the Fed. Cir. held, that is ““First, the product must be the subject of a commercial offer for sale․ Second, the invention must be ready for patenting.”

    So you apparently mean, contract law, since the Fed. Cir. held “that the offer must meet the level of an offer for sale in the contract sense, one that would be understood as such in the commercial community.   Such a reading leaves no room for ‘activity which does not rise to the level of a formal ‘offer’ under contract law principles.'”

    So the question is, are there foreign laws which define a “formal offer under contract principles” that are at variance with the general federal standard that the Fed. Cir. announced in the Group One case (which it adopted from the UCC)? What countries have a different definition of a “formal offer under contract principles” and how are they different from the Group One test?

    (BTW, there is a limited adoption of foreign law in copyright law. Itar-Tass Russian News Agency v. Russian Kurier, Inc., 153 F.3d 82 (2d Cir. 1998)

    link to casetext.com

    held that in determining ownership of a copyright in a work created abroad in an employer-employee situation, you apply the foreign law, not the U.S. law of work-for-hire. The opinion is complex, but much of the holding rests on a treaty, the Berne Convention, and Congress’ implementation of it.)

    1. 4.1

      BL – interesting add – thanks!

      1. 4.1.1

        +1

  3. 3

    The good news is that Jason will not be surprised at all to discover that “tech” is, in most instances, a pile of over-hyped cr-ap that feeds money into the hands of grifters who already have lots of money.

    Right, Jason? Who here has been telling you this for years?

    The good news is Iowa’s outsized role in selecting candidates is finished, hopefully forever.

    1. 3.1

      Your off-topic note on Iowa needs more than just a little context to make any point that you think that you are making.

      So tell us how now the Dem party is imploding… (and why should we care)

      1. 3.1.1

        There’s no implosion, Billy.

        Just another irrelevant red state, filled with r@ cysts and halfwits and easy marks.

        1. 3.1.1.1

          … which has nothing to do with the complete falling apart of the Dem party’s own efforts there…

          Way to pass the buck (as if anyone would be surprised with comments coming from you).

          1. 3.1.1.1.1

            Pretty sure the halfwits and easy marks had something to do with the debacle.

            Still a far better overall performance than anything we’ll ever see from the toxic sack of fetid dogs—t in the White House or his defenders (like you).

            1. 3.1.1.1.1.1

              Your “pretty sure” is most definitely wrong as the debacle was entirely the Dem party screwing things up.

              And once again, you ploy your “one bucket” mentality and screw up the fact that just because someone points out the mess of the Dem party DOES NOT make them repuke defenders.

  4. 2

    … and I would reign in the “OH NOES” tone in regard to the intimation that the US is reaching outside its borders and changing the substantive law of any other Sovereign. That’s just not the case, as all that is happening is the US deciding how any foreign inputs are going to be adjudged under the US Sovereign patent law.

    Patent law is intricate enough without extraneous alarmist misconceptions being introduced.

    1. 2.1

      Yes, this is not an issue of extraterratoriality – no U.S. law or decision is being applied outside the U.S.

      This is a U.S. statute being applied in U.S. courts to U.S. patents and their U.S. validity, based only on an independent foreign activity, so I do not see how there could be any likely dispute over how the statute is interpreted.
      BTW, international secret sales represent an insignificant number of potential patent defenses and far less important in the various AIA changes than moving U.S. patent or publication prior art dates back to their parent foreign filing dates.

      1. 2.1.1

        BTW, one reason why reexaminations and IPRs are limited to patent and publication prior art is that the process of taking discovery evidence in foreign countries of these and other foreign acts would have presented additional difficulties, disputes and delays in IPRs [as it had in interferences].

      2. 2.1.2

        Re: “The removal of geographic limits on public uses and on-sale prior art is a rather sweeping change. As yet, the importance of the removal of these territorial limits has not been explored by the courts.” Indeed, there have been no cases because it is NOT a “sweeping change” in effect.

    2. 2.2

      Sorry, there’s no way past the fact that the Helsinn decision created huge, and unfair, traps for unwary patent applicants – especially foreign ones. So what if a Malaysian company extends a confidential offer to a Korean company in Hong Kong? This is perfectly OK under the patent laws of their own countries, and it never qualified as prior art in the United States before.
      Why would it be fair or reasonable to expect such companies to know whether their transaction constitutes an “offer for sale” under the law of some court in Washington DC?

      1. 2.2.1

        First, see post 1.

        Second, the point here is that NO Foreign law is substantively changed and ONLY US Sovereign law has been affected.

        The “OH NOES” was not whether or not the new US law creates traps for the unwary, but was instead based on the insinuation that US law was reaching past our own borders and messing with what other Sovereigns may do (within their own Sovereign spheres).

      2. 2.2.2

        A valid point, albeit foreign companies now not being able to obtain valid U.S. patents to assert against companies in the U.S. is obviously not high on the list of U.S. company or inventor concerns.
        Furthermore, the Supreme Court decision in Helsinn Health Care S.A. v. Teva Pharmaceuticals USA, Inc., was not intended or anticipated by promoters of the AIA legislation – they thought they were eliminating secret sales as prior art.
        There are also various requirements of foreign patent systems that many U.S. inventors are not familiar with and thus regularly lose foreign patenting opportunities, all adopted with no concern for confused American inventors.

        1. 2.2.2.1

          Well, the Helsinn decision affects U.S.-based patentees as well, because secret foreign sales between unrelated foreign entities are now prior art. If I independently invent and diligently file a patent application in the USPTO, why should my patent be invalid because some guys in Nepal transacted a secret sale of which nobody, including myself and the PTO, could have known?
          But at bottom I guess you’re right. Subject to treaty obligations, the US could decide to deny patents for any reason, and foreign countries would just have to deal with that. Except in this instance Congress never decided to treat foreign secret sales or secret commercial uses as prior art. The Helsinn Court simply didn’t know what it was doing.

          1. 2.2.2.1.1

            Moocow, stretching Helsinn to secret uses would be quite a stretch indeed. Unlike the U.S. “on sale” bar in the U.S. 102 statute it only bars prior “PUBLIC use.” Admittedly attorneys could be found who would be willing to be paid to argue that “public” does not really means public and includes its exact opposite – private. But I do not think many Sup. Ct. justices would buy it.

          2. 2.2.2.1.2

            Well, evidence of a prior secret sale would show that you weren’t the first inventor (or you didn’t file soon enough).

            That’s a decent enough reason to deny you a patent. Just because you were surprised doesn’t mean that you’ve been treated unfairly.

            1. 2.2.2.1.2.1

              On my private island, I already have ‘evidence’ of any desired ‘secret sale’ of anything (it’s all in my private language, which can generate any configuration of protons, neutrons and electrons according to the laws of nature.

              What could go wrong with this manner of promoting innovation?

            2. 2.2.2.1.2.2

              Uh, MM… one never had to be the first inventor to be entitled to a patent. Think about this for a while before you object.

              1. 2.2.2.1.2.2.1

                +1 for the point
                +1 for asking Malcolm to the think about the point.

          3. 2.2.2.1.3

            Helsinn … affects U.S.-based patentees as well, because secret foreign sales between unrelated foreign entities are now prior art.

            I made this mistake as well when Helsinn was first being considered. I cannot remember who cited me the case that proved that I was wrong about this (Loderunner, perhaps? Or maybe Quasar?), nor can I remember the name of the case that proved that I was wrong. I can definitely remember, however, that I looked up the case that this person cited, and it proved that I was 100% wrong in this worry. The law that Helsinn applies works only against the commercializer itself, not against some third party.

            Secret prior sales do not tell against the patentability of applications filed by parties not involved in that secret sale. Those secret third-party sales are non-enabling art, and thus no obstacle to patentability by one not party to the sale.

            Hopefully the person who originally set me straight will remember the name of the case that s/he cited, and mention it here.

            1. 2.2.2.1.3.1

              The Soliloquy… — see the AIA.

              ( )

            2. 2.2.2.1.3.2

              Greg, are you sure you are not confusing the non-102 Metallizing Engineering Doctrine, which is not prior art and only a personal forfeiture of patent rights, with a third party secret “on sale” ?

              1. 2.2.2.1.3.2.1

                I am sure if one thing: Greg IS confused.

                This is what happens when you purposefully blind yourself to contributions on the comments, just because your feelings were hurt (on an issue that you were wrong on).

                Greg does this to himself.

              2. 2.2.2.1.3.2.2

                Greg, are you sure you are not confusing the non-102 Metallizing Engineering Doctrine… with a third party secret “on sale”?

                I was definitely confusing the two. I believe that Moocow is presently confusing the two. I cannot remember who it was that set me straight (maybe it was yourself, Paul). In any event, I am obliged to the one who corrected my confusion on this point, although I do not recall exactly who that was.

                1. Nope, I may be wrong, but I’m not confused. The old patent forfeiture provisions were wiped out by the AIA, and cases like WL Gore and Metallizing Engineering no longer work with the new prior art provisions. For example, the rule used to be that you had one year from secret sale or commercial use to file your patent application, by direct reference to old 102(b). That’s now gone, and the new grace year provisions don’t protect the inventor from his own nonpublic activities. The AIA really only contains one rule of novelty for everybody; all the inventor-specific rules of patentability are gone.

                2. You are not wrong about the wiping out of personal forfeitures — Congress was explicit about that.

                3. The old patent forfeiture provisions were wiped out by the AIA, and cases like WL Gore and Metallizing Engineering no longer work with the new prior art provisions.

                  As a matter of simple statutory construction, I think you are correct. I want to agree with you here. Still and all, this is totally opposite of what the Court held in Helsinn v. Teva (“ More than 20 years ago, this Court determined that an invention was “on sale” within the meaning of an earlier version of §102(a)… [without] further requir[ing] that the sale make the details of the invention available to the public. In light of this earlier construction, we determine that the reenactment of the phrase “on sale” in the AIA did not alter this meaning,” emphasis added).

      3. 2.2.3

        Why would it be fair or reasonable to expect such companies to know whether their transaction constitutes an “offer for sale” under the law of some court in Washington DC?

        The author’s proposal does not affect the company’s Malay patents, or its South Korean patents, or even its Hong Kong patents. The proposal only affects the company’s United States patents. It is not—I think—asking too much that a company that chooses to pursue patents in the United States be willing to take cognizance of U.S. law governing those patents.

        1. 2.2.3.1

          It is not asking that much of inventors in other countries or here to not delay filing their patent application until after engaging in commercial exploitation of the invention, by secret commercial sales or otherwise.

          1. 2.2.3.1.1

            That too.

          2. 2.2.3.1.2

            With all due respect Paul, it IS asking too much — AND perpetrating the rather blatant mistake of confusing two very different drivers that come from two very different parts of our Constitution.

            This type of obfuscation from you simply helps no one.

          3. 2.2.3.1.3

            Paul, Those who wrote the AIA actually (and quite affirmatively) went in the opposite direction, providing for a new Sui Generis “Right” (of true submarine nature).

            See also: link to patentlyo.com to which the silence has been deafening.

          4. 2.2.3.1.4

            Nor was there any express rejection in the AIA statute of the non-statutory doctrine of WL Gore and Metallizing Engineering, And clearly no expressed intent to allow trade secret protection for unlimited years followed by patent protection for 20 or more years.

            1. 2.2.3.1.4.1

              And clearly no expressed intent to allow trade secret protection for unlimited years followed by patent protection for 20 or more years.

              Not only is this explicitly false, this also perpetrates the fallacy, confusion and conflation of two very different drivers from two different portions of the Constitution.

              It’s like you insist on ignoring plain facts Paul, and want your fallacy to stay in place “just because.”

  5. 1

    Could it be that a baseline assumption here is off and that the Helsinn case is simply not as broad as is being presumed here?

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